Valuing a Bakery

Valuing a Bakery

Recent health and diet trends continually change the bakery industry. Many consumers have started seeking healthier alternatives to the bread products they purchase. This has led to a recent decline in revenue within the bakery industry. Some of this change can also be attributed to the COVID-19 pandemic and the way people obtain their bread products. These, and many other factors impact the value of a bakery. Whether you plan on buying or selling a bakery, it is important to understand the fair market value of a bakery. 

As a business appraiser, Peak Business Valuation can help with this. Peak Business Valuation, business appraiser, works with dozens of individuals who are buying or selling their bakery. The first step in doing so is to obtain a business valuation. As part of a valuation engagement, we discuss some of the key factors an expert uses when valuing a bakery. The below factors are merely a guide. For specific information about valuing a bakery, schedule a free consultation with Peak Business Valuation, business appraiser. 

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Market Multiples for a Bakery

  • SDE Multiple Average: 2.27x – 3.09x
  • EBITDA Multiple Average: 3.46x – 4.37x
  • REV Multiple Average: 0.40x – 0.69x
**Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.

The above are average market multiples for a bakery. A valuation multiple is commonly used when valuing a bakery. The valuation expert uses valuation multiples when comparing similar companies and determining a fair market value. By understanding what your bakery is worth, you can take steps to increase the value of your bakery. This is helpful whether you are expanding, acquiring, or maximizing the value of a bakery before selling it. Below are a few ideas to help increase the value of your bakery. For a more extensive valuation, schedule a free consultation with Peak Business Valuation, business appraiser.

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Key Success Factors

Peak Business Valuation, business appraiser values bakeries regularly. Below are several success factors that can help distinguish your bakery and increase its value. 

Competition  

To attract customers, you must have an awareness of the competitive landscape your bakery operates in. When Peak Business Valuation, business appraiser does a valuation for a bakery, we always consider the competition. Knowing your competition will help you make better strategic decisions. For example, if there is a Cinnabon within one block of your restaurant you might reconsider your product offering. Another example is having your bakery focus on baking dessert products if most of the surrounding businesses are sandwich shops.

Differentiation 

In terms of competitors, it isn’t a matter of if you have them but more so knowing who they are. Differentiating your brand and products is essential. If your bakery doesn’t differentiate it won’t stand out among your competitors. As such, identifying a niche within your bakery, or a way to be unique will help your business stand out. Some examples of this are unique packaging, creative storefront decorations, an open kitchen concept, etc… There are endless ways to differentiate your bakery. 

Cost of Ingredients 

Next, obtaining the best quality ingredients for the best price makes all the difference in the final product. The balance between quality and cost is crucial. Taste is key to the value being offered to the customer. However, to maintain competitive pricing, margins must be watched carefully. Spending too much on high-quality ingredients can be a detriment to profitability. Other considerations include bulk quantity discounts, shelf-life, turnover rate, etc… Each bakery is unique in its ingredient needs. Coming up with a plan to determine your bakery’s needs for ingredients is much more cost-effective than using trial and error to determine that balance. A valuation expert will look at your profitability ratios and financial ratios and compare them to industry averages. 

Cost of Labor

One of, if not the, biggest expenses for a bakery is the wages of its employees. Knowing exactly how the cost of labor affects your bakery’s bottom line will help you make informed decisions. There are ways to help determine how best to allocate the right amount of funds to labor costs. 

One of the first steps is determining the number of employees needed to fulfill operational demands. This includes a plan for when to hire another employee after optimal operational capacity is reached. Another important thing to consider is the right hourly rate/salary for each employee. This will vary depending on experience and other factors. Finally, once these numbers are calculated you can have a better idea of the appropriate hours of operation to have the business opened for. For example, it might make sense to be closed on a Tuesday afternoon if foot traffic is lower. Knowing and controlling costs is key to maximizing the value of a bakery.

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Baking Equipment 

From mixers to ovens, it is important to have a clear understanding of the equipment required to produce bakery products. Peak Business Valuation, business appraiser considers the impact these tangible assets have on the value of a company. Not having sufficient baking equipment can hinder optimal operational capacity within the business. This can lead to bottlenecks that leave potential revenue on the table. Whereas, having too much equipment can have other negative effects. Unnecessary equipment can be the source of unnecessary costs/expenses. It is worth evaluating the equipment needs of your bakery to understand what your Goldilocks amount of equipment needed is.

Online Presence

More than ever customers look to their electronic devices for information. Making your bakery accessible through an app, social media, and a website is now essential. If your bakery is difficult to find online it will impact revenue. Peak Business Valuation, business appraiser examines marketing and sales strategies when performing business valuations. A strong digital marketing plan is reflected in your bakery’s financial statements. For more information, see The Value of SEO. 

Summary

There are many important considerations when valuing a bakery. Understanding the value of a bakery is important whether you are looking to buy, sell, or grow a bakery. Obtaining a business valuation can help you understand the fair market value and maximize the value of a bakery.

Peak Business Valuation, business appraiser, values bakeries across the country. We are happy to answer your questions about understanding the value of a bakery. You can reach out via email or by scheduling your free consultation below. 

 

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